October 2018 might feel like a lifetime ago; an awful lot has happened politically and economically since! Things have been moving so quickly it’s a challenge to stop writing a market commentary like this, especially with ongoing Brexit developments. But, we will be publishing smaller, timely updates as and when is necessary.
So, what went on in the last quarter of 2018? Quite a lot; here are just a few developments…
UK: The Budget, Brexit and ‘broken’ high street
The Chancellor of the Exchequer Philip Hammond presented his Budget “for hard-working families” to Parliament on the 29th October. There was wide speculation beforehand that pension contribution limits could be targeted to increase tax revenue, but, thankfully, that didn’t materialise.
In fact, in what transpired to be a relatively low-key Budget, the prevailing mood was quite positive. Was it the Budget that prepares us for Brexit? Time shall tell, but highlights included:
- The Personal Allowance threshold, the rate at which you start paying 20% Income Tax, will rise from £11,850 to £12,500 in April, a year earlier than originally planned
- The 40% higher rate Income Tax threshold will rise from £46,350 to £50,000
- The National Living Wage will rise from £7.83 to £8.21, benefitting 2.4 million workers
- Fuel duty will be frozen for the ninth consecutive year
- Beer, spirits and some cider duty will be frozen for a year
What about Brexit?
During the Budget, Hammond proclaimed we were at a “pivotal moment” in the Brexit talks, with a deal leading to a potential “double Brexit dividend”. Hindsight, may indeed, be a wonderful thing. The get-out-clause being the Spring Statement could be bumped up to a full Budget, depending on the Brexit outcome.
There’s no escaping the effect on the markets; volatility was especially prominent in October. During Q4 and beyond, UK Equities remain widely unloved thanks to so much political and economic uncertainty. The FTSE 100 dipped below 7,000, thanks also in part to the US market, and the pound (the ‘Brexit barometer’) remains untrusted by currency traders.
It’s really important to remind ourselves at this point that investing is for the long-term. Don’t get caught out by short-term concerns. History has demonstrated time and time again that markets recover; a loss is only created when an asset is sold.
The Brexit timeline has been frankly impossible to predict. But in Q4, briefly, things looked quite orderly. A deal had been struck with EU leaders, the Conservatives were on board. Then, a day later on 15th November, Brexit minister Dominic Raab quit saying he could not “in good conscience” support the deal. Alarm bells were ringing! A string of resignations followed. Theresa May then survived a vote of no confidence, but, at the time of writing, new headlines continue to pour out by the minute as crisis talks continue. The latest word from EU leaders is that the planned revised withdrawal “will not be renegotiated”. Hmm.
What about the high street?
The Budget did include a £650 million future package to help ailing high streets, but we watched HMV go into administration for the second time, putting 2,200 jobs at risk. Potentially joining Poundworld, Maplin and Toys R Us, who departed earlier in 2018, some traditional retailers are really struggling with increased rent, rates and online competition to name a few challenges.
In other retail news, two prominent scandals broke: Billionaire owner of Topshop, Sir Philip Green, was publicly named over harassment claims following days of speculation in the press. Allegations were denied, the case currently continues.
Then, employees of British brand Ted Baker alleged a culture of ‘forced hugging’ by the founder and boss Ray Kelvin. The fashion group initially said it was simply part of the culture but was not insisted upon. They then carried out an independent investigation and Mr Kelvin subsequently took voluntary leave amid the harassment allegations.
The brand’s share price did tumble when the story broke, but it’s not all doom and gloom for the brand. Its share price has subsequently bounced back after excellent Christmas retail sales; the BBC report both online and in-store trade rising 18.7% and 12.2% respectively during December.
A final positive for UK retailers? You might have read it in our October monthly update: Tesco, in response to Aldi and Lidl gaining market share, launched Jacks, a homage to the company’s founder; Jack Cohen. Mr Cohen was one of the pioneers of the ‘pile it high, sell it cheap’ philosophy and Tesco hopes to regain its dominance by competing directly with the low-cost supermarkets. Time will tell whether this will work or if Tesco simply ends up competing with itself!
Other UK Q4 high and lowlights?
Well, during December 25 million O2 users rediscovered the 90s when the mobile provider’s data network went down for an extended period. No social media gratification, banking apps, map directions or work email (phew?!), it certainly re-emphasised our current reliance on mobile connectivity!
In the wider UK economy;
- Domestic manufacturing output continued to grow at a steady pace. This was predominately supported by robust demand in sectors including electronics, aerospace, food and drink
- Growth in manufactured exports continued to slow, as the previous boost from the depreciation of sterling declined
- Housing market activity weakened, partly due to increased uncertainty about Brexit and the economic outlook
- Investor demand for commercial property was concentrated in warehousing, rather than the high street. Demand from foreign investors for new developments remained steady
- The headline statistic, however; over Q4 the FTSE 100 was down 10.41%
Further afield, Danish budget airline Primera, which had 15 planes and offered low-cost flights from Stansted and Birmingham to North America, collapsed. You may not have heard of Primera in the first place, but it just goes to show the issues of attempting to pursue an unsustainable, long-term growth strategy.
In France, the yellow vest anti-Macron protest movement started over levelling the tax on diesel with petrol. What started as a protest quickly turned into chaos over several weeks, and police are coming under increased pressure following a number of casualties after using rubber bullets.
Marcon, dubbed ‘president of the rich’, has quickly become one of the least popular presidents as living costs have increased for ordinary people and unemployment remains relatively high in comparison to European neighbours.
The world’s largest and recently most volatile market has witnessed reduced global trade and economic growth. Interest rates are on the up as it’s been the Federal Bank’s policy to increase rates since 2015, striking concerns that borrowing may get prohibitively expensive.
We witnessed a tech boom, some say an over-egged market; Apple becoming the first company to be valued at a trillion dollars (£780 billion). Their shares remain relatively steady, despite recent poor sales of the latest iPhone.
Trump has been in the headlines for more reasons than we care to mention, but, ultimately, economic growth in the US is slowing, despite constant proclamations that everything is ‘great’.
The Government shutdown which left thousands of government workers unpaid for weeks, sparked by Trump wanting funding approved for his wall, is estimated to have cost the US economy $3 billion. That reduces from the country’s growth in 2019 by 0.02%, according to the Congressional Budget Office.
Then we have the US-China trade war, which isn’t good for either market. Currently under truce, but the future remains uncertain.
Finally, the headline US statistic; in December the S&P 500 suffered losses not seen since the great depression of the 1920s. Not as ‘great’ as Trump would have you believe.
Meanwhile, in Asia, the Japanese and Chinese markets are also slowing; Japan especially, thanks to its ageing and shrinking population.
In November, the Japanese car industry was also hit with a bombshell. Nissan boss Carlos Ghosn was arrested over claims of financial misconduct. A ‘towering figure’ in car manufacturing, Mr Ghosn has denied the accusations but was sacked as chairman by Nissan and Mitsubishi.
In China, Huawei’s huge growth and speculated collusion with the Chinese government has sparked a few controversial stories. With a high court case taking place in the US relating to alleged bank fraud, and their chief financial officer and the daughter of the founder Meng Wanzhou arrested in Canada for evading US sanctions against Iran, Huawei’s worldwide reputation has really been called into question.
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